Our national antitrust tradition is under attack. In recent months, Americans have witnessed a surge of corporate mergers. British Petroleum, one of the world's largest oil companies, just paid $2 billion for Kennecott, one of the world's largest mining companies. Nabisco and Standard Brands, two giant food manufacturers, have recently merged. In the financial sector, American Express combined with the brokerage firm, Shearson, Loeb, and Phibor Corp., the commodities giant, with Salomon Brothers. And the marriage of Conoco and DuPont, a $7 billion transaction, has been given the green light by the Justice Department.
This wave of very large mergers is profoundly unsettling. Representing the Federal Trade Commission, I testified jointly with the chief of Justice's antitrust division at Senate hearings in 1978. Then we were questioning acquisitions of $100 million firms--41 in 1977, 80 in 1978, 83 in 1979 and 94 in 1980. Subsequently, we began to track the $500 million transactions from six in 1978 to 16 in 1979. Now we have reached the year of the multi-billion-dollar deals.
Why worry about these enormous mergers? Because they concentrate great economic and political power in the hands of fewer and fewer executives. In some cases, they strengthen already existing monopoly power or domination within industries. They divert executive attention from doing business to buying businesses. They make it less likely that the individual businesses within the diversified company are as efficient as possible. In short, they concentrate economic, social and political power without contributing to productivity.
These billion-dollar mergers are being encouraged by an administration that appears eager to shrink the scope and force of the antitrust laws. Attorney General William French Smith has announced that this administration does not believe bigness is bad and his assistant attorney general for antitrust has under way a project to loosen restrictions on mergers. And the administration has just reversed it position on the Justice Department suit against AT&T.
The administration appears to believe not only that bigness equals efficiency, but that bigger is inevitably better, that giantism is needed to compete in world markets and, therefore, that it ought to be encouraged. They are wrong. What the United States needs is to increase productivity and to increase its share of world trade though more vigorous domestic competition.
Contrary to myth, our trading rivals have not earned their great successes by marketing products from government-sponsored monopolies. In the Japanese auto industry, for example, Toyota, Nissan, Mitsubishi, Toyo Kogyo, Honda and Fuji are all for midable world competitors that compete aggressively at home. In color TVs, the Japanese have not only Matsushita, Sony, Toshiba and Hitachi, but Mitsubishi, Sanyo, Sharp and Nippon Electric. The Japanese steel market has tough domestic competition among five companies.
The drive to abrogate antitrust is misguided if its intention is to help the economy. Using the cash of successful corporations to acquire other huge companies means these funds are not used to buy new capital equipment, to replace outworn plant or to engage in research and development to support the core enterprise of the company. Preoccupation with acquisitions and buying into leadership positions in new markets divert the attention of top management from improving productivity and incorporating available innovations. The challenge faced by American industry in the coming decade will be from foreign firms that are smaller than our own, but may well outsell us by their managers' attention to the businesses they know the best.
But the concentration of corporate assets may pose an even greater threat: a shift in the balance of political power. I believe we have begun to see a decisive change toward corporate dominance of public decision-making, and substantial concentrations of corporate power will tilt the balance even further. Consider the size of a political action fund, consisting of 1 percent of the executive salaries of a $50 billion company. Does anyone doubt that a chemical producer that also controls thousands of jobs in several industries, which has a far-flung network of distributors of consumer goods and which is the major employer in dozens of congressional districts, cannot dramatically influence environmental legislation? Increased concentration of corporate wealth inevitably vests political power in fewer hands, allowing more effective coordination of activities influencing policy--and shutting out less privileged citizens.
Despite the uncritical faith of those who believe that bigness is benign, that it inevitably offers increased productivity with no costs to our society or economy, most Americans remain uneasy about the concentration of greater and greater economic power in fewer and fewer hands and skeptical of the benefits. They are right.